(The primary editor of “anothersview” has a degree in economics.)
To no one’s surprise, the Trump tariffs are beginning to impact food, appliance, car and other prices. It is inevitable that retailers operating at single digit profit margins will pass most–if not all– of their price increases to their customers. If you doubt the impact, we suggest you check Amazon for the current price of anything you bought in the last year. That will be proof-positive that we are headed in the wrong direction. Bigger picture: Trump is pressuring the Federal Open Market Committee and its Chair, Jerome Powell, to lower interest rates. As we blog today, the “Fed” is about to meet and discuss the possible reduction of interest rates. WE WILL SAY IT PLAINLY “THIS IS A HUGE MISTAKE”. Think of the US economy as a big balloon. When the balloon is expanding the Fed tries to moderate its stretching by raising rates so that it limits inflation. When the balloon is contracting the Fed lowers rates to encourage businesses to build more plants, hire more employees, maybe re-tool, etc. Today–with the increase in inflation, the growth of unemployment and the lack of jobs being created–we are clearly in a contraction part of the economic cycle. But the problem is that businesses will not take advantage of lower borrowing rates to build more plants and hire more employees if they can’t sell what is stacking up in their warehouses. IMAGINE A SCENARIO WHERE INFLATION IS RAMPANT, UNEMPLOYMENT IS DOUBLE DIGIT, GDP IS FALLING, WAREHOUSES ARE FULL OF OVERPRICED GOODS THAT NO ONE CAN AFFORD, NO NEW JOBS ARE BEING CREATED, AND ALL THE TARIFF MONEY IS FINANCING TRUMP’S VIOLATIONS OF THE US CONSTITUTION. So, who would benefit from lower rates? You may already have guessed the answer. Real estate developers who thrive on lower rates will be able to finance years of building at low rates and simply bide their time until those developments can be rented or sold. Trump would be happy with even a one month rate reduction to scoot through that time window and lock in deals. Said another way: Trump wants lower rates for Trump enterprises–not for the economic health of America. Wake up and see the reality of his focus.
BOTTOM LINE: STAGFLATION (high inflation without accompanying economic growth) or REAL DEPRESSION IS OUR NEXT STEP. WE, AT ANOTHERSVIEW, PREDICT A SERIOUS SLOWDOWN IN GROSS DOMESTIC PRODUCT WITH NEGATIVE GROWTH UP TO DOUBLE DIGIT DECLINES BY THE END OF 2025. WE MAY BE LUCKY ENOUGH TO ESCAPE FULL BLOWN DEPRESSION BUT ONLY IF CONGRESS AND THE SUPREME COURT REIN IN THE WHIMS OF OUR GREEDY AND SELF-SERVING PRESIDENT.
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